Automobile buyers will pay less tax when purchasing the majority of vehicles in China from November 1.

The State Administration of Taxation (SAT) announced the decrease in the basic price for taxation of more than 30,000 types of domestically made and imported automobiles in the wake of the automobiles' price drop in the domestic market.

It is the first time the administration has adjusted the basic price for taxation after the country began to implement the automobile purchasing tax to replace the automobile purchasing fee at the beginning of the year, an official with SAT said.

Following the adjustment, China's tax departments are expected to pay close attention to market changes, in preparation for the country's accession to the World Trade Organization (WTO).

The administration will adjust the basic price for taxation at proper times, in accordance with the market changes, the SAT official said.

"The adjustment indicates that tax departments try to create a fair market environment, while managing to keep a normal tax income," said Ni Hongri, a researcher with the Development Research Center under the State Council.

However, the adjustment alone is not expected to have many positive effects on the country's automobile consumption, and, therefore, China should introduce a complete automobile policy to encourage consumption, according to Liu Shijin, another of the center's researchers.

"It is imperative for the government to develop a specific consumption policy and put it into operation to encourage more private buyers."

It is predicted that private consumers will account for 70 percent of total auto sales within the next 10 years.

Liu believes an adverse consumption environment is one of the biggest obstacles curbing the development of the auto industry.

Jia Xinguang, an analyst at the China National Automobile Industry Consulting and Development Corp, said the most serious problem was local authorities placing limits on the use of private and mini vehicles, alongside arbitrary fees imposed on consumers.

The central government already charges a 3 to 8 percent auto consumption tax and a 10 percent purchase tax.

"I hope a favorable consumption policy will be released this year," said Jia, adding that the current limits, taxes and fees have seriously depressed the market.

Presently, taxes and fees charged by local governments average 15 to 40 percent of the price of a car.

According to the China Institute of Automotive Economic and Technical Information, the taxes and fees imposed on consumers by central and local governments in 1999 exceeded 160 billion yuan (US$19 billion), compared with profits of less than 5.8 billion yuan (US$699 million) for all domestic automakers.

Things have not significantly improved since then, although the central government has abolished 238 administrative fees for customers since July last year.

Qie Xiaogang, a manager of the Beijing Asian Games Village Automobile Exchange, said the most important thing was for a "unified" national consumption policy to be strictly implemented to improve the depressed consumption environment.

The policy could be fine-tuned afterwards in line with the development of the market and the auto industry, Qie added.

(China Daily October 25, 2001)